TLB Co., Ltd (KOSDAQ:356860) Stocks Shoot Up 30% But Its P/E Still Looks Reasonable

TLB Co., Ltd (KOSDAQ:356860) shareholders would be excited to see that the share price has had a great month, posting a 30% gain and recovering from prior weakness. But the last month did very little to improve the 52% share price decline over the last year.

Since its price has surged higher, given close to half the companies in Korea have price-to-earnings ratios (or "P/E's") below 11x, you may consider TLB as a stock to avoid entirely with its 51.3x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

TLB hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for TLB

If you'd like to see what analysts are forecasting going forward, you should check out our free report on TLB.

Is There Enough Growth For TLB?

There's an inherent assumption that a company should far outperform the market for P/E ratios like TLB's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 48% decrease to the company's bottom line. The last three years don't look nice either as the company has shrunk EPS by 73% in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the four analysts covering the company suggest earnings should grow by 382% over the next year. With the market only predicted to deliver 34%, the company is positioned for a stronger earnings result.

With this information, we can see why TLB is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From TLB's P/E?

Shares in TLB have built up some good momentum lately, which has really inflated its P/E. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of TLB's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

Before you take the next step, you should know about the 4 warning signs for TLB that we have uncovered.

Of course, you might also be able to find a better stock than TLB. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.